The Stimulus Act’s “Buy American” Provision for Solar

The ARRA provision is an attempt to increase domestic benefits by requiring “buy American” for projects it funds on public buildings. Just how American does “American” have to be? Only your PV module manufacturer knows for sure.

The American Recovery and Reinvestment Act (ARRA) of 2009 requires that solar projects on public buildings be developed “buying American” materials and products. While “buying” is uncontroversial, it turns out that “American” can be more international, foreign, worldly, cosmopolitan, and/or legalistic than you might first think.

Section 1605 of ARRA (aka the “Stimulus” or “Recovery” Act) mandates, “None of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States” [emphasis added].

To implement this congressional mandate, the White House’s Office of Management and Budget (OMB) issued guidance to federal agencies. Plainly enough, “produced in the United States” means the states or territories. According to the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy, “a domestically manufactured good for the purposes of the ‘buy American’ provision of the Recovery Act, is one that has undergone ‘substantial transformation’ in the United States or its territories.”

So what does this mean? EERE says, “Substantial transformation occurs when, as a result of manufacturing processes, a new and different article emerges, having a distinctive description, character, or use, which is different from that originally possessed by the article or material before being subject to the manufacturing process. The mere finishing or modification of a partially or nearly complete foreign product in the United States will not result in the substantial transformation of such product and it remains the product of a foreign country.”

EERE developed several multipart questions to determine the “substantial transformation” status of goods. Turns out, where PV modules are concerned, some are “more” American-made than others.

In an attempt to clarify and simplify this legalistic morass to facilitate PV installations on public buildings, EERE issued a “Solar Public Interest Waiver” that waives the American-made formal requirements for purposes of ARRA for:

domestically manufactured modules, even though they are made of foreign manufactured cells;

foreign manufactured modules, if they are “completely composed” of domestically manufactured cells; and

ancillary items and equipment (essentially the balance of system components, save for inverters and batteries).

According to the EERE guide, it doesn’t matter, for ARRA’s “buy American” provisions, if the U.S. manufacturing facility is foreign-owned. (For instance, SolarWorld’s manufacturing facility in Hillsboro, Oregon, is German-owned, and Schott Solar, which is also German-owned, has a manufacturing plant in Albuquerque, New Mexico.) If it costs more than 25% more to “buy American,” the provision does not apply. If the total value of the project is $7,804,000 or greater and the grant recipient is “party to an international agreement” (there is an official and exclusive list in the regulations), one doesn’t have to “buy American” to get the ARRA grant.

The Solar Energy Industries Association, a U.S. trade group, distinguishes for distinct parts of the PV module manufacturing process.

Polysilicon Production. Highly purified polysilicon is the feedstock for ingot and wafer production. According to Greentech Media, 25% of the world polysilicon production in 2010 came from three U.S. facilities.

Ingot/Wafer Production. Ingots are large bricks of polysilicon. Wafers are very thin slices of the bricks. “Global wafer production is dominated by Asian manufacturers, particularly those in China and Taiwan,” says Greentech Media. “Only 3% of PV wafers manufactured worldwide in 2010 were produced in U.S. facilities.”

Cell Production. The basic unit of PV energy production, cells are made from processing wafers. The United States produces only 3% of the world’s PV cells.

When considering an entire PV system, 71% of the value is domestically produced. Module mounting structures, inverters, and other electronics and hardware, along with site preparation, labor, and other (permitting, legal, engineering, financing, distribution, profit, etc.) make up the vast majority of the value chain.

To get a practical handle on what “American-made” modules were available, Home Power examined the product listings of Civic Solar, which is aggressively marketing the portion of its module offerings that are “American-made.” Of the 191 different PV modules from 19 manufacturers Civic Solar offered in late 2011, 46 were classified as “ARRA-qualified.” The remaining 145 were not. The average price (single-module pricing) of all PV modules was $2.16 per watt. The ARRA-qualified modules averaged $2.43 per watt; non-ARRA-qualified modules averaged $2.06 per watt. The $0.37 per watt difference between “American” and non-“American” made PV modules on a 50 kW system for a public building is $18,500.

According to Civic Solar, some or all of its PV module offerings from Kyocera, Schott, Schuco, Sharp, SolarWorld, and Solon are ARRA-qualified. Civic Solar’s website offers some Kyocera modules that have identical technical specifications and even identical model numbers, but only those made in “Japan, Mexico, USA” are ARRA-compliant, while those labeled just “Mexico” are not.

Since it was enacted in early 2009, ARRA has spent $749 billion on tax benefits, contracts, grants, loans, and entitlements. As of January 2012, EERE had funded $435 million for 462 solar-related projects subject to ARRA’s “buy American” provisions.

The Act’s provisions pertaining to “buy American” indeed result in an advantage to U.S.-manufactured solar goods and materials—and therefore U.S. workers, as ARRA intended. But given global supply chains, exemptions and waivers allowed by ARRA and its regulations, and other factors, maybe not as much as politicians who touted the provisions led us to believe.